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RCC Topic 7

The Revised Corporation Code of the Philippines outlines the rights and obligations of stockholders and members, including voting rights on key corporate actions, proprietary rights such as dividends and appraisal rights, and the ability to participate in management through various voting methods. It also details the circumstances under which stockholder action is required, including majority or two-thirds votes for specific decisions. Additionally, it describes remedial rights available to stockholders, including individual, representative, and derivative suits for addressing grievances against the corporation.

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14 views25 pages

RCC Topic 7

The Revised Corporation Code of the Philippines outlines the rights and obligations of stockholders and members, including voting rights on key corporate actions, proprietary rights such as dividends and appraisal rights, and the ability to participate in management through various voting methods. It also details the circumstances under which stockholder action is required, including majority or two-thirds votes for specific decisions. Additionally, it describes remedial rights available to stockholders, including individual, representative, and derivative suits for addressing grievances against the corporation.

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REVISED CORPORATION

CODE OF THE PHILIPPINES


STOCKHOLDERS AND MEMBERS
Rights of a Stockholder or Member

• Direct or indirect participation in the management


• Right to vote in the following instances:
1. Amendment of the Articles of Incorporation;
2. Adoption and amendment of bylaws;
3. Sale, lease, exchange, mortgage, pledge, or disposition of all or
substantially all of the corporate property
4. Incurring, creating, or increasing bonded indebtedness;
5. Increase or decrease of authorized capital stock;
Rights of a Stockholder or Member

• Right to vote in the following instances:


6. Merger or consolidation of the corporation or business in
accordance with the RCC;
7. Investment of corporate funds in another corporation or business
in accordance with the RCC; and
8. Dissolution of the corporation.
Rights of a Stockholder or Member

• Right to elect (Sec. 23) and remove (Sec. 27) directors or trustees;
• Proprietary rights
✓ Right to dividends (Sec. 42)
✓ Appraisal right (Sec. 80)
✓ Preemptive right (Sec. 38)
✓ Right to inspect books and records (Sec. 73)
✓ Right to be furnished with most recent FS (Sec. 74)
Rights of a Stockholder or Member

• Right to recover stocks unlawfully sold for delinquent payment of


subscription; and
• Right to file individual suit, representative suit and derivative
suit.
Participation in the Management

• Stockholders and members may vote in person or by proxy in all


meetings of stockholders or members. (Sec. 57, RCC)
• Proxy
➢ is a form of agency created in instances when a person is unable to
personally cast his or her vote; hence the act of voting is delegated to
another person. (Yatco Real Estate Services, Inc. vs. Bel Air Village
Association, G.R. No. 211780, November 21, 2018)
- Shall be in writing, signed and filed by the SHM in any form
authorized in the bylaws and received by the corporate
secretary within a reasonable time before the scheduled meeting.
Participation in the Management

• Voting Trust Agreement (VTA)


➢ is an agreement in writing where one or more SH of a corporation
consent to the transfer of their shares to a trustee in order to vest
in the latter voting or other right pertaining to said shares for a
period not exceeding 5 years upon the fulfillment of statutory
conditions and such other terms and conditions specified in the
agreement. (Sec. 58, RCC)
➢ The 5-year period may be extended in cases where the voting
trusty is executed pursuant to a loan agreement whereby the
period is made contingent upon full payment of the loan. (Id.)
Cases when Stockholders’ action is required

• All stockholders vote is required


➢ Ratification of ultra vires acts
Cases when Stockholders’ action is required

• Majority vote of the stockholders is required


➢ Election of directors and trustees (Sec. 23, RCC)
➢ Vacancies in the office of directors and trustees (Sec. 28, RCC)
➢ Compensation of directors and trustees (Sec. 29, RCC)
➢ Entering into a management contract (Sec. 43, RCC)
➢ Adoption of bylaws (Sec. 45, RCC)
➢ Amendment of bylaws (Sec. 47, RCC)
➢ Voluntary dissolution where no creditors are affected (Sec. 134, RCC)
Cases when Stockholders’ action is required

• 2/3 vote of the stockholders is required


➢ Amendment of AOI (Sec. 15, RCC)
➢ Removal of directors and trustees (Sec. 27, RCC)
➢ Dealings of directors and trustees with the corporation (Sec. 31,
RCC)
➢ Disloyalty of director (Sec. 33, RCC)
➢ Extending or shortening corporate term (Sec. 36, RCC)
Cases when Stockholders’ action is required

• 2/3 vote of the stockholders is required


➢ Increase or decrease of CS; incur, create or increase bonded
indebtedness (Sec. 37, RCC)
➢ Sale or other disposition of corporate assets (Sec. 39, RCC)
➢ Investment of corporate funds in another corporation or business
or for any other purpose (Sec. 41, RCC)
➢ Declaration of stock dividends (Sec. 42, RCC)
➢ Entering into management contract (Sec. 43, RCC)
Cases when Stockholders’ action is required

• 2/3 vote of the stockholders is required


➢ Amendment to bylaws- when delegated (Sec. 47, RCC)
➢ Approval of merger or consolidation plan (Sec. 76, RCC)
➢ Voluntary dissolution where creditors are affected (Sec. 135,
RCC)
Cases when Stockholder’s action alone is
required
• Without the need of BOD/T action
➢ Election of directors or trustees (Sec. 23, RCC)
➢ Removal of directors or trustees (Sec. 27, RCC)
➢ Compensation of directors (Sec. 29, RCC)
➢ Dealings of directors, trustees or officers with the corporation (Sec. 31,
RCC)
➢ Contracts between corporations with interlocking directors (Sec. 32,
RCC)
➢ Disloyalty of a director (Sec. 33, RCC)
➢Adoption of bylaws (Sec. 45, RCC)
Manner of Voting

• In person
• Through a proxy
• Through remote communication or in absentia, when authorized in
the bylaws
➢ Provided that the votes are received before the corporation
finishes the tally of votes
➢ SEC shall issue rules and regulations
Proprietary Rights

• Appraisal Right
➢ A SH who dissents from certain corporate actions has the right to
demand payment of the FMV of his or her shares. (Sec. 80, RCC)
➢ This is the right to withdraw from the corporation and demand
payment of the fair value of his or her shares after dissenting from
certain corporate acts involving fundamental changes in corporate
structure.
Proprietary Rights

• Preemptive Right
➢ The SH’s right to subscribe to all issues or disposition of shares of any
class in proportion to his or her present stockholdings. (Sec. 38, RCC)

• Right to Inspect Books and Records


➢ The SH has the right to inspect in person or through representative
corporate books and records at reasonable hours on business days (Sec.
73, RCC)

• Right to be furnished with the latest FS (Sec. 74, RCC)


Proprietary Rights

• Right to Dividends
➢ The BOD of a stock corporation may declare dividends out of
unrestricted retained earnings which shall be payable in cash,
property or in stock to all stockholders on the basis of the
outstanding stock held by them (Sec. 42)
Remedial Rights

• Individual Suit
➢ Brought by the shareholder in his or her own name against the
corporation when a wrong is directly inflicted against him or her.
➢ The cause of action belongs to the individual stockholder
personally, and not to the stockholders as a group or the
corporation
- E.g., denial of right to inspection and denial of dividends to
a SH
Remedial Rights

• Representative suit
➢ Brought by the shareholder in behalf of himself or herself and all
other SHs similarly situated when a wrong is committed against a
group of SHs.
➢ The cause of action belongs to a group of SHs, such as when the
rights violated belong to preferred SHs
➢ A class or representative suit may be filed to protect SHs in the
group. (Villamor vs. Umale, 736 SCRA 325)
Remedial Rights

• Derivative Suit
➢ Brought by one or more SHs/members in the name and on behalf
of the corporation to redress wrongs committed against it, or
protect/vindicate corporate rights whenever the officials of the
corporation refuse to sue, or the ones to be sued, or has control of
the corporation.
➢ An action filed by SHs to enforce a corporate action.
➢ An exception to the GR that the corporation’s power to sue is
exercised only by the BOD/T. (Villamor, Jr. v. Umale, 736 SCRA
325)
Remedial Rights

• Derivative suit
➢ The SH’s right to file a derivative suit is not based on any express
provision of the RCC, but is impliedly recognized when the law makes
the corporate directors or officers liable for damages suffered by the
corporation and its SHs for violation of their fiduciary duties. (Ching v.
Subic Bay Golf and Country Club, 734 SCRA 569)
➢ The real party in interest is the corporation, and the suing SH is a mere
nominal part.
➢ An exception to the GR that the corporation’s power to sue is exercised
only by the BOD/T. (Villamor, Jr. v. Umale, 736 SCRA 325)
Derivative Suit (Requisites)

• Rule 8, Section 1 of the Interim Rules of Procedure for Intra-


Corporate Controversies
➢ He or she was SH or member at the time the acts or transactions
subject of the action occurred and at the time the action was
filed;
➢ He or she exerted all reasonable efforts, and alleges the same
with particularity in the complaint, to exhaust all remedies
available under the AOI, bylaws, laws or rules governing the
corporation or partnership to obtain the relief he or she desires;
Derivative Suit (Requisites)

• Rule 8, Section 1 of the Interim Rules of Procedure for Intra-


Corporate Controversies
➢ He or she was SH or member at the time the acts or transactions
subject of the action occurred and at the time the action was filed;
➢ He or she exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under
the AOI, bylaws, laws or rules governing the corporation or partnership
to obtain the relief he or she desires;
- A demand made on the BOD for appropriate relief is considered
compliance with the requirement of exhaustion of corporate
remedies (Lopez Realty v. Sps. Tanjangco, GR No. 154291, 12
November 2014)
Derivative Suit (Requisites)

• Rule 8, Section 1 of the Interim Rules of Procedure for Intra-


Corporate Controversies
➢ No appraisal rights are available for the act or acts complained
of;
➢ The suit is not a nuisance or harassment suit; and
➢ The action brought by the SH/M must be in the name of the
corporation or association.
Obligations of a Stockholder

• Liability for dividends unlawfully paid


• Liability to the creditors of the corporation for unpaid subscription
• Liability of watered stock
• Liability to the corporation for interest on unpaid subscription if
so required in the bylaws
• Liability to the corporation for unpaid subscription

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